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How big a mess is Pennsylvania’s charter school sector? This big.

The governor is vowing to restructure it.

Grandview Elementary School fifth-graders Olivia Zabrosky, left, and Jalilah Clyburn greet Pennsylvania Gov. Tom Wolf (D) after a news conference at the school in Erie, Pa., on Aug. 29. (Greg Wohlford/Erie Times-News/AP)

Pennsylvania Gov. Tom Wolf (D) has been making charter-school supporters in his state mighty unhappy.

The charter sector in Pennsylvania has long been beset by fraud and a lack of transparency and accountability. In fact, in 2016, the state’s auditor general called the state charter law the “worst” in the nation.

Now Wolf has raised the ire of supporters of charter schools — which are publicly funded but privately operated — referring to the “growing cost of privatization of our public schools” while discussing cyber charters.

Meanwhile, a recent news release issued by the governor’s office said he wanted to stop the drain of public resources from traditional public school districts that instead are going to these schools: “Pennsylvania must help school districts struggling with the problem of increasing amounts of school funding siphoned by private cyber and charter schools.” Calling these schools “private” angered charter supporters, who say they are public because they are publicly funded (though not accountable to the public in the same way school districts are).

Now Wolf is moving ahead to try to change the charter sector in his state in the absence of movement from the Republican-led legislature. In August, he said he would, among other things, use executive power to make sure charters are held to the same “ethical and transparency standards of public schools,” and allow school districts to cap the number of charters.

This post looks at the state of the charter sector in Pennsylvania, the reality that Wolf is trying to change. It was written by Carol Burris, a former New York high school principal who serves as executive director of the Network for Public Education, a nonprofit advocacy group for public schools.

Burris was named the 2010 Outstanding Educator by the School Administrators Association of New York State, and the National Association of Secondary School Principals named her the New York State High School Principal of the Year in 2013. Burris has been chronicling problems with modern school restructuring and school choice for years on The Answer Sheet.

There’s a backlash against charter schools. What’s happening and why.

By Carol Burris

Pennsylvania Gov. Tom Wolf horrified the charter school lobby with eight words — “the privatization of education in our public schools.” He used that phrase during a July news conference in which he was bemoaning the state of cyber charter schools in Pennsylvania.

Ana Meyers, executive director of the Pennsylvania Coalition of Public Charter Schools, quickly expressed outrage and dismay. “I am shocked that you and your staff are unaware that none of Pennsylvania’s charter schools [bricks-and-mortar or cyber] are private or for-profit institutions,” stated Meyers in a letter to the governor.

As shocked as she may claim to be, Meyer’s response was entirely predictable. Denying that the state’s charters are connected from profiteering is part of the narrative that the charter lobby spins, confusing the public.

Charter schools are funded by the public but are permitted to operate outside of the public school districts in which they operate, sometimes by for-profit entities. Meyers must know that although individual charter schools in Pennsylvania must be set up as nonprofit organizations, there is nothing to prohibit them from being run by for-profit organizations. In fact, Pennsylvania law, which its own auditor general referred to as “simply the worst charter school law in the United States,” explicitly allows it.

In Pennsylvania and in most states with charter schools, for-profit management agencies can help create (or find others to create) the nonprofit foundation which then contracts with the for-profit corporation to provide services to the school. In other words, the nonprofit can be designed to financially sustain the for-profit organization.

One of the most notorious (and profitable) Pennsylvania for-profit operators is CMSI Management, which operates charter schools in Chester, Pa., and Atlantic City CMSI also managed a school in Camden, N.J., until that state shut it down for poor academic performance.

The founder and CEO of CSMI is Vahan H. Gureghian, a Philadelphia businessman who was recently in the news when he bought the bank-seized Palm Beach mansion of convicted real estate developer Robert V. Matthews for over $30 million. Gureghian, a big donor to Pennsylvania Republican politicians, gave over $336,000 to the campaign of Tom Corbett, former governor and advocate for charter schools and school vouchers.

Gureghian entered the charter school business in 1998 when he “partnered” with the Chester Community Charter School (CCCS) to open its first campus with fewer than 100 students. Today, the K-8 school has four campuses that enroll over 4,000 students, making it the largest bricks-and-mortar charter school in the state.

Although the school draws most of its students from the impoverished community school district of Chester Upland, more than 1,000 come from Philadelphia. CCCS says that students endure the long bus ride from the city because of the quality of its programs. Philadelphia officials attribute the enrollment of its students to a slick marketing campaign that does not disclose the poor academic performance of the charter school.

CCCS students perform worse on state tests than students in the school district of Chester Upland. Its students also do worse than the students attending the other charter school in town. In 2016-2017, only 5 percent of CCCS students scored as proficient in math, with a whopping 80 percent scoring below basic. Only 14 percent scored proficient in English language arts.

Such poor scores on the Pennsylvania System of School Assessment (PSSA) exams were not always the case. The charter school’s scores took a huge dive after CCCS was sanctioned by the state for “systemic violations of the security of the PSSA exams” during the 2007-2011 state tests, which resulted in one of the school’s administrators losing her license. In other words, when the state stopped the charter school from cheating, scores precipitously fell.

The school had previously done its own cheating investigation and found no wrongdoing.

Can charter schools be reformed? Should they be?

One might imagine that a charter school with a cheating scandal coupled with dismal student performance would be shut down, but that is not the case. In fact, the school received an unprecedented renewal of its charter.

Peter R. Barsz, who has served as treasurer for many Republican campaigns (including Corbett’s) was appointed to oversee the financially stressed Chester Upland School District in 2016. That stress was due in great part to CCCS.

His position also gave him sole authority to renew the CCCS charter. In 2017, he extended the charter agreement with CCCS, giving the school nine years to operate before renewal. This premature extension, granted after only one year of the charter’s prior five-year renewal, gave the charter school a free pass from accountability for nearly a decade.

And that translates into assured big profits for the charter school’s management company, CSMI. According to the CCCS 990 tax return for 2017, CCCS paid Gureghian’s company $18 million in management fees that year. That amount represents 27 percent of all the income that the school received, almost exclusively from taxpayers.

In contrast, Philadelphia’s Mastery Pickett Charter School paid about $1.5 million to its nonprofit management organization in 2015 (12 percent of the money it receives almost exclusively from taxpayers) and KIPP Philadelphia Academy paid a little more than $1.2 million (10 percent of the money it receives mostly from taxpayers). MaST Community Charter School, which does not have a charter management organization to which it is obligated, spent $113,491 on management costs — less than 1 percent of its income.

CSMI has not shared how much of $18 million it receives is profit.

Extracting profit from a charter school costs students services they need, according to Jeanine Bethel, former principal of CSMI’s Atlantic City charter school. CSMI is presently being sued by Bethel, who claims she was fired for exposing what she says are the management company’s illegal practices designed to save money — practices that she said included shortchanging special education services and the misuse of federal funds. [Max Tribble, chief communications officer for CSMI, said in an email to The Post, “We intend to fully contest the allegations which are totally false."]

CSMI is not the only player in the Pennsylvania for-profit management world. Omnivest Properties Management describes itself as a “premier education management and technology company and an experienced real estate development company and a financial services company.”

Located in Newtown, Pa., the company was founded in 2001 by B. Robin Eglin, who was previously employed by another for-profit education management organization. The Omnivest website lists 14 Philadelphia-area charter schools, a few private schools and Jiffy Lube as its clients.

Two of the listed charters — New Media Technology High School and Imani Charter School — were shut down in 2016. The drawn-out process of shutting down New Media began not long after a 27-count indictment of two top officials who used charter school funds to pay for a private school, health food store and restaurant they controlled, as well as to pay their credit card bills. Omnivest’s sister company, Mandrel Construction, converted a former church into the now defunct high school for $5 million.

Several other clients of Omnivest have been involved in scandals, including Khepera Academy which has been fighting closure for years; the Harambee Charter School, which housed a night club in its cafeteria and whose founder’s family member pleaded guilty to two counts of wire fraud; the Philadelphia Academy Charter Schools, whose leaders were engaged in fraud, kickbacks and theft; Aspira charters, which have been critiqued for their lack of accountability and transparency; and the Imhotep charter schools, which have been reprimanded for fraud.

Then there is the financially stressed Franklin Towne Charter School, an Omnivest client that has been accused of special education discrimination as well as the firing of a principal who blew the whistle on the school’s alleged illegal practices. Those included not adequately servicing English Language Learners, misreporting the kindergarten program and paying a board member’s spouse for a nonexistent job.

In addition, Franklin Towne was cited by the city controller for leasing a school that it owned to a for-profit entity formed by the school’s CEO, who then leased the school back to the school itself — all of which is apparently legal in the “charter schools are nonprofit” world of Ana Meyers. The charter school is $30 million in debt due primarily to its real estate dealings.

Mandrel Construction built the Franklin Towne high school and Omnivest has a $100,000 a year business contract with the school. Omnivest’s website boasts that it “provides a full complement of management services, including back-office support, fiscal planning, federal programs management, grant writing and reconciliation” for the school that is so deeply in debt.

And in 2010, Omnivest was cited in a report of the Philadelphia Office of the Controller for its related transactions relationship with its client, People for People Charter School (a.k.a. People Charter School). Eglin was the chief financial officer for People Inc., the school’s related organization, at the same time that the charter school entered into lucrative management contracts with Omnivest and Mandrel Construction. People Inc., which owned the charter school building, leased the building to Omnivest, which then leased the building to the school.

In addition, Omnivest entered into a contract with the school for which it received 9 percent of the school’s revenue every year, irrespective of services provided. In his 2014 follow-up report, the controller noted that Eglin had resigned as chief financial officer; however, the school was still in a contractual relationship with the for-profit Omnivest.

All of this pales in comparison to that of the mega-online charter schools connected to Pennsylvania’s cyber charters.

Unlike most states, Pennsylvania school districts pay charter schools (bricks-and-mortar and cyber) per-pupil tuition from their taxpayer levy based not on the school’s instructional costs, but rather on how much the district pays to educate its own students. Because there are little to no costs to maintain buildings or provide transportation, and because class size in the mega-cyber charters is substantially higher, there is an extraordinary opportunity to profit.

Based on the actual costs incurred by school districts that run their own cyber charters, Education Voters of Pennsylvania recommends that cyber charter tuition should be set at $5,000 for general education students and $8,865 for students with special needs. During the 2018-2019 school year, the West Chester Area School District, for example, paid much more — $12,620 (general education) and $29,565 (special education) per pupil.

Myers, of the Pennsylvania Coalition of Public Charter Schools, referred to the Education Voters’ report as a “one-sided pile of garbage” and argued that the state’s cyber charters required far more funding than that. Which side is correct?

To find out, I looked at the most recent financial statements of two of the states mega-cyber charters — Commonwealth Charter Academy Charter School (a.k.a. Commonwealth Academy Charter) and Pennsylvania Virtual Academy (a.k.a. Pennsylvania Virtual Charter School).

Commonwealth Academy enrolled 8,592 students during the 2017-2018 school year. Its 2017 revenue as reported on its most recent 990 was over $130 million, but its expenses that year were only slightly more than $114 million, leaving a difference of more than $18 million. The school used the services of more than 51 private contractors that received at least $100,000. The for-profit deliverer of online curriculum, Pearson, received $24.5 million, while the Bravo Group received $7.9 million for advertising.

Of the $30 million that the school spent on salary and wages, $19.4 million went to its instructional staff, and $10.8 million was spent on management salaries, according to the financial statements.

Pennsylvania Virtual Academy enrolled 2,074 students in 2017-2018. Its 2017 federal 990 tax form shows income and expenses to be relatively the same. However, the nonprofit also shows over $14 million in assets and fund balance. While the school spends $5.2 million on salaries and benefits, an additional $10 million goes toward other instructional services including $6.5 million to the for-profit Virginia-based K12 Inc. for curriculum, materials and other products.

Lest one believe that a cyber charter has to be associated with the online for-profit giants to cash in, consider Pennsylvania’s largest cyber charter school, Pennsylvania Cyber Charter. Through an elaborate web of related party transactions among other nonprofits organizations, a for-profit vendor and a bricks-and-mortar charter school, its founder, Nick Trombetta, was able to siphon off $8 million from the cyber charter, landing him a prison sentence for tax fraud. Apparently, the wheeling and dealing that resulted in an $8 million windfall were legal under the charter law but tax evasion was not.

Temple University law professor Susan DeJarnatt has been researching Pennsylvania’s cyber charters and the state’s weak charter laws for years. In this 2013 article in the Urban Lawyer entitled, “Keep Following the Money: Financial Accountability and Governance of Cyber Charter Schools,” she explored not only the two major cyber scandals (Pennsylvania Cyber Charter and Agora) but also how the combination of huge surpluses along with the lack of supervision make the mega-cyber charters easy targets for fraud. She wrote:

These schools present heightened vulnerability to exploitation when they are untethered to any local regulatory entity, have small boards, and do not benefit from community oversight. When that heightened vulnerability is combined with the generous funding and accumulation of surpluses noted above, the resulting situation is ripe for potential abuse.

Pennsylvania has allowed the unchecked and under-supervised proliferation of charter schools to put its public school system in crisis, as explained in this PBS report, featuring Bethlehem Superintendent Joe Roy.

Wolf should be thanked, not scolded, for his willingness to enact reform by executive order rather than wait for a legislature unwilling to take on the charter lobby.

To be against “for-profit charters” is meaningless and it does not begin to address the problem of fraud and profiteering. It is time to call out those who obfuscate the presence of the for-profit world that hides behind the phrase “public charters.”